What You Need To Know About Plug-in Electric Drive Motor Vehicle Credit

Your vehicle purchase must satisfy a number of criteria in order to qualify for the qualified plug-in electric drive motor vehicle tax credit. Only qualified vehicles are eligible for the credit purchased after December 31, 2009. Additional requirements are:

• Plug-in electric vehicle must be brand new
• Must be made by an eligible manufacturer under the Clean Air Act
• Have at least four wheels
• Be appropriate for driving on public streets and highways
• Have a weight rating of less than 14,000 pounds
• The vehicle must have an electric motor that uses a rechargeable battery to generate at least 4 kilowatt-hours of capacity

For a list of qualifying vehicles, you may visit the IRS website in this link:

https://www.irs.gov/businesses/irc-30d-new-qualified-plug-in-electric-drive-motor-vehicle-credit

What Is Manufacturer’s Certification?

You will be provided with a certification that your vehicle qualifies for the credit by the manufacturer or your qualified plug-in vehicle. Information on the make, model and year of your vehicle and which specific credit amount your vehicle qualifies for will be found in the vehicle manufacturer’s certification.

An official statement, however, has been released by the IRS saying that certain vehicles no longer qualify for the credit. Relying on subsequent certifications by the manufacturers of those vehicles is not a good idea. But the IRS periodically posts information on its website showing a list of manufacturers that are eligible for the credit and as well as the production numbers for the qualifying models.

Credit Calculation through Form 8936

There are three parts in Form 8936. Your tentative credit amount, which, in most cases, the manufacturer will have provided with its certification is calculated in Part I. The credit starts at $2,500 and goes to a maximum of $7,500 if the vehicle satisfies at least the minimum requirements.

Once you’re done in the first part of Form 8936 which is the tentative credit calculation is found, the other two parts allocate the credit between your business in Part II and personal use of the vehicle in Part III.

Reduction of Tentative Credit

Your tax bill will be reduced by the amount of your qualified plug-in electric drive motor vehicle tax credit on a dollar-for-dollar basis. You will be required to have a tax liability you report on your return in order to claim the credit.

You may not be able to see the full tax savings of the tentative credit you calculate on Form 8936 depending on your liability and other tax credits you take. The reason for this is that the credit is a non-refundable credit. Your tax bill cannot be reduced by non-refundable tax credits below zero nor reduce your tax bill for a number of other credits taken before reducing the remaining tax bill for your plug-in electric motor vehicle credit.

Can You Pass On the Electric Vehicle Tax Credits?

One common question being asked by people is this: In the case of low-mileage cars that dealerships sell after having used them as demonstrators or loaner cars, who gets to claim the tax credit?

The simple answer to this is NO. You cannot pass on EV tax credits. The federal tax credit can only be claimed by the original registered owner of an eligible vehicle. It cannot be passed along to a subsequent buyer even if the original owner didn’t apply for the credit for any reason.

Since it can be a bargaining point in a used-car purchase negotiation, knowing this information is very important. If the federal tax credit program means the list price for the new model is reduced by up to $7,500, it might turn out that a new model with the tax credit is a better deal than a used one.

Tax Credits From States or Other Sources

There also are dozens of state and regional incentives on plug-in vehicles and those that use alternative fuels even though we only hear about the federal tax credits for plug-in and natural gas vehicles all the time. There are a dozen or more programs in many states but most of them only apply to businesses. Exemptions from fees and inspections are also other forms of some credits. Non-monetary incentives include carpool lane access and free parking. There also other states that can get some cost relief in the form of tax credits, rebates, or reduced vehicle taxes or registration fees for buying a qualified alternative-fuel or electric-drive vehicle for retail buyers.